Last year, the number of pay-TV subscribers fell for first the time ever. The decline was small, at just 251,000, but the "cord-cutting" phenomenon is expected to speed up. Plenty of ink has been spilled on this transition as technology and companies like Netflix (NASDAQ:NFLX) have made home entertainment accessible without a cable box, but analysts seem to have missed one of the key drivers for this shift: People hate cable companies and they love the enterprises, such as Netflix, Amazon (NASDAQ:AMZN), and Hulu, that are disrupting the industry.
Really, cable companies are the worst
A poll conducted by the American Customer Satisfaction Index earlier this year of 70,000 U.S. consumers found that Internet service providers and cable companies are the two most hated sectors in the country, worse than airlines and health insurance companies. The two biggest cable companies, Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC), were ranked as the most hated companies in the country, with scores of 57 and 56. Time Warner's 56 was actually the worst score in the history of the American Consumer Satisfaction Index. The survey underscored why the two are so reviled, saying, "High prices, poor reliability, and declining customer service are to blame for low customer satisfaction with pay TV services. The cost of subscription TV has been rising 6% per year on average -- four times the rate of inflation."
Cable providers are notorious for hidden fees, long call-in wait times, and endless time windows for service calls. For a long time, the industry had no real competition, but now that over-the-top programming and the technology to watch it on TV has spread, cable is beginning to lose its audience. In contrast to Comcast and Time Warner, Netflix and Amazon win much stronger reviews from consumers.
Earlier this year, Netflix's consumer satisfaction score hit 79 in the same survey, hitting a three-year high as the company recovers from the "Qwikster debacle" that saw it divide its streaming and DVD-by-mail packages, causing some customers to ditch the service. First as a DVD-by-mail service, Netflix endeared itself to the American public by eliminating an often onerous task: going to the video store, selecting a movie, and returning it on time. Just as Netflix put the customer first then, it's doing the same now by offering a rock bottom of $8/month in comparison to cable, and simple, no-hassle service.
Amazon, the No. 2 player in streaming, is also known for outstanding customer service, and was ranked No. 1 in customer satisfaction in the country by ACSI with a score of 88. Like Netflix, Amazon is a disruptive innovator and puts customer satisfaction above all else. In becoming the world's biggest online retailer, it also eliminated a hassle: the need to visit a store.
Will next year be worse for cable?
It's certainly possible. If cord-cutting already seems appealing, consumers will have even more reasons to ditch cable next year. HBO plans to launch a stand-alone streaming service in 2015, and CBS, which made its own programming available in October for $6/month, plans to do the same with Showtime, which it owns, next year.
With Netflix and pay-TV programming such as HBO and Showtime soon to be available, it will be easy enough for the average American to entertain themselves without cable -- with the exception of watching sports.
For cable providers, the only hope may be to make a renewed attempt at satisfying customers instead of going on the defensive with proposed mergers that would help them save money, eliminate competition, and likely lower customer satisfaction. That's not a viable long-term strategy. The question of the death of cable then seems to be not if, but when.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Netflix. The Motley Fool owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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